BOJ will end negative interest rates in 2024, economists say

Japanese national flag is hoisted atop the headquarters of Bank of Japan in Tokyo, Japan Sept 20, 2023. REUTERS/Issei Kato

TOKYO  – The Bank of Japan will end its negative interest rate policy next year, the majority of economists said in a Reuters poll, as the market has begun to envisage the demise of its ultra-easy monetary settings.

Although none of the economists surveyed saw the chance of the BOJ rolling back its easy stance at this week’s meeting, nearly 80 percent of them said the central bank will also abolish the 10-year yield control scheme by the end of 2024.

Governor Kazuo Ueda told a newspaper interview earlier this month the BOJ might get enough data by year-end to judge whether it could end negative rates, prompting traders to buy the yen to hedge against a possible earlier-than-expected rate hike.

READ: BOJ’s hawkish tilt suggests end to super-easy policy approaching

Thirteen of 25 economists, or 52 percent, expected the BOJ to end its negative rate policy, which has set Japan’s short-term deposit rate to minus 0.1 percent over the past seven years, some time in 2024, the Sept 8-19 poll found. That was up from 41 percent in an August poll.

Two economists forecast the rate lift-off to happen as early as in January-March, while eight voted for April-June, one for July-September, and two for October-December. The remaining 12 selected “2025 or later”.

Japan remains an outlier in global monetary policymaking, with many central banks led by the U.S. Federal Reserve embarking on aggressive interest rate increases to combat red-hot inflation while the BOJ holds on to its easy policy settings. The Fed held rates steady on Wednesday but hardened its hawkish stance.

READ: BOJ loosens tight grip on rates as prices rise, markets bet on bigger pivot

Chiyuki Takamatsu, chief economist at Fukoku Mutual Life Insurance, said the BOJ will end the negative interest rate at its March 18-19 meeting after it confirms the signs of sustainable wage growth from the national labor confederation Rengo’s preliminary survey result of 2024 spring pay talks.

Economists’ forecasts for the end of the yield curve control (YCC) policy were mostly unchanged from the August poll, with 78 percent of 27 respondents saying it will happen by the end of 2024.

At the previous July policy meeting, the BOJ modified the YCC to allow long-term rates to rise more in line with higher inflation, following a surprise widening of the yield cap in December 2022. The benchmark 10-year Japanese government bond yield rose to 0.745 percent on Thursday, its highest level since September 2013, after the hawkish Fed statement.

Two economists, at Barclays and Mizuho Securities, anticipated the BOJ would scrap YCC at next month’s meeting. “YCC is increasingly becoming a matter of formality and will likely be abolished in October, when BOJ publishes its quarterly outlook report,” said Barclays’ chief economist Tetsufumi Yamakawa.

More analysts expected the BOJ to go straight to removing YCC rather than tweaking it again, such as widening the 10-year yield cap or changing the target yield to a shorter maturity, the poll showed.

Japan’s third-quarter annualized gross domestic product was forecast to contract 0.8 percent, followed by 0.6 percent growth in the final quarter of the year, according to the poll.

Economists’ median forecast for Japan’s fiscal 2023 core consumer inflation rate was unchanged at 2.8 percent, while the fiscal 2024 rate was revised up to 2 percent, suggesting the BOJ’s target will be met for a much longer period.